S&N agrees takeover after £7.8bn bid is confirmed

Heineken has not brewed a drop in the UK for seven years, but yesterday took another step closer to becoming Britain's biggest beer group when the board of Scottish & Newcastle recommended a cash takeover valuing its business at £7.8bn plus debt.

After a three-month row over price, S&N agreed to be split between rivals Heineken and Carlsberg, with the latter taking S&N's most prized division - its 50% holding in Baltic Beverages Holding, the fast-growing leader in the Russian market; Carlsberg already controls the other half.

The bidders had to raise their price three times after an initial 720p a share was spurned by the makers of Foster's, Strongbow and John Smith's as "unsolicited and unwelcome". With relations patched up (in public, at least), Carlsberg chief executive Jørgen Buhl Rasmussen said that the deal would be "transformational".

It would make the Danish firm the fastest growing brewer in the world, he said: "No doubt about it - I don't even want to include the word 'probably' here." With full control of BBH: "We will be clear leaders in Europe in a few years, ahead of our dear friends at Heineken." Carlsberg had been actively plotting a break-up of S&N since last summer, Rasmussen said.

For its part, Heineken said that its takeover of Britain's last major brewer, with a 27% UK market share, would result in £85m of cost savings - some by closing S&N's corporate offices in Edinburgh, where 100 staff work. Heineken executive chairman Jean-François van Boxmeer declined to be drawn yesterday on the wider workforce but refused to rule out brewery closures. Brian Revell, national organiser at Unite, said: "Heineken has no UK brewing capacity so there is no duplication with S&N which strengthens the position of our members." The union was seeking a meeting with the Van Boxmeer to get commitments related to job security, and he had already assurances on retirement benefits.

Despite recommending the offer, S&N is still pursuing a legal action against Carlsberg, claiming its bid amounted to a "material breach" in the BBH joint venture agreement; this step is thought to be intended as a welcoming signal to any potential counter-bidders - Budweiser brewer Anheuser-Busch and London-listed SABMiller are believed to be watching closely.

BBH has been the focus of a bitter row over an appropriate price for S&N. John Dunsmore, S&N chief executive, accused Carlsberg of trying to get the Russia-focused joint venture "on the cheap", circumventing a so-called "shotgun clause" designed to discourage the partners from bidding for each other's BBH holdings.

In answer to this charge, Carlsberg yesterday agreed to publish confidential projections for BBH so S&N shareholders could better assess its offer. The figures showed BBH is expected to make top-line operating profits of €950m for this year, growing to €1.1bn next year and to €1.25bn for 2010. These numbers would be pored over by any potential counter-bidder.

S&N closed up 17p last night at 783p. A hoped-for final dividend of 15p a share will not be paid under the offer terms.